Weather a crypto bear market with these strategies.
Crypto bear markets can be challenging, but there are strategies to help you weather the storm.
In this article, we discuss what you can do to make the most of a market downturn.
Table of Contents
What Is a Crypto Bear Market?
A crypto bear market can be defined as:
A negative trend in the prices of a particular coin, token, or the crypto market as a whole.
More specifically, a crypto bear market emerges after prices have dropped 20% or more within a 60-day period.
During such bear markets, those with crypto in their portfolios are generally more pessimistic about the future and are more averse to risk than they might normally be.
In a similar vein, those involved in the market — whether it’s in an upturn or a downturn — may claim to be “bearish,” signaling that they’re generally convinced that prices will decrease over a particular period of time.
This is similar to the bear markets that characterize more traditional markets, such as stocks, bonds, and real estate. Cryptocurrency markets, however, are smaller and more volatile than these traditional asset classes.
As a result, it’s not uncommon to see fluctuations of 50% or more in a single day. In addition, crypto bear markets are often stronger and more prolonged than other commodities (e.g, an 85% price drop over 10 weeks).
Because of this propensity toward volatility, cryptocurrency markets may stay in a general downturn longer than more traditional markets.
But that doesn’t mean you need to panic. A bull market may be just around the corner.
Crypto Bear Market vs. Crypto Bull Market
While a crypto bear market is a negative trend in the prices of a particular coin, token, or the market as a whole, a bull market is a positive trend in those same sectors.
A bull market is the exact opposite of a bear market and emerges after prices have risen 20% or more within a 60-day period.
Again, cryptocurrency markets are prone to larger fluctuations, so within that 20% rise over 60 days, you may see even more extreme peaks and valleys. The general trend, though, will be in an upward direction.
During a bull market, those with crypto in their portfolios are generally more optimistic about the future and can be more inclined to take risks that they might not take in a bear market.
In a similar vein, those involved in the market — whether it’s in an upturn or a downturn — may claim to be “bullish,” signaling that they’re generally convinced that prices will increase over a particular period of time.
Signs of a Crypto Bear Market
If you’re not sure which way the cryptocurrency markets are trending, take a step back and look for these signs of a bear market:
- Investor confidence is low
- Coin and token prices are down significantly (more than 20% in most cases) for prolonged periods
- Supply is greater than demand
- New investors have fled the market
- Good news is hard to come by
- Many are experiencing fear, uncertainty, and doubt (FUD)
While you may not see all of these signs all at once — particularly at the beginning of a bear market — any one of them can send asset prices into a freefall.
History of the Term “Bear Market”
The jury’s still out as to the exact etymology of the term “bear market,” but the concept has been around since at least the early 1700s. Back then, it was part of another term — bearskin — which was part of an adage that advised not to “sell the bear’s skin before it’s caught.”
The idea of selling something that you don’t yet have stuck around and evolved into just “bear,” referring to someone who borrowed stock in the expectation that the price would go down and could be bought back at a lower price (the bear would keep the difference as profit).
The terms “Bear Market” and “Bull Market” are also thought to refer to the fighting styles of the respective animals. Bears swipe down at their opponents while bulls thrust their horns up.
Etymology aside, the terms became synonymous with a prolonged downturn or upswing in a market.
6 Things to Know About a Crypto Bear Market
It’s always good to have a strategy — particularly when the market starts to drop into a crypto bear market. Consider the factors below and your portfolio may live to see another day.
1) Dollar-Cost Averaging May Reduce Risk
Dollar-cost averaging (a.k.a. recurring buys) during a crypto bear market is a strategy that involves spending equal amounts of money at regular intervals regardless of where the price of the cryptocurrency is at the time.
Savvy crypto traders realize that trying to time the market exactly is nearly impossible, so, instead of locking all of their money in an asset all at once (and, therefore, at the same price point minus slippage), they use dollar-cost averaging instead.
This allows them to reduce the risk of timing their purchases by spreading out their entry points instead of spending a lump sum all at once.
For example, you may decide to spend $6,000 purchasing BNB over the course of a year. Rather than trying to time the market, you decide to make 12 purchases of $500 at a set time each month.
Sometimes, you’ll get more BNB because prices are lower. At other times, you’ll get less BNB because prices are higher. Overall, however, automated dollar-cost averaging may net you more BNB than you might bring in by trying to time the market and place orders manually.
Auto-Buy on Binance.US was created with this strategy in mind. Customers can easily set their schedule from the buy screen by toggling the Auto-Buy slider on and deciding how often they would like to make a purchase.
To use this feature, download the latest version of the Binance.US mobile app.
2) Long-Term Goals Are Crucial
A bear market is the perfect time to focus on long-term goals. When you take a wider view, big market swings month after month — or even year after year — won’t necessarily impact the goals you’ve set.
When markets are down, reevaluate why you got involved with cryptocurrency in the first place. If those reasons still hold, persevere through the difficulties with an eye toward the upturn.
3) Panicking Never Helps
One of the best things you can do after getting involved in cryptocurrency is to keep a level head and don’t panic when things start to go south.
If you lose your cool, the likelihood that you’ll make a poor decision, withdraw your funds prematurely, and experience big losses can increase.
When it comes to keeping a level head, do your best to take crypto news with a grain of salt. That means not succumbing to fear, uncertainty, and doubt, and not getting carried away with something that’s too good to be true.
4) Research Is a Necessity
When the chips are down and prices tumble, there’s little room for mistakes. It’s at this time that research becomes more important than ever.
During a bear market, take the time to review, relearn, and acquire new knowledge about basic topics, such as:
- The cryptocurrency market as a whole
- How the market works
- What factors affect its movement
- How to read a candlestick chart
- How to spot scams
- Key cryptography
- Private keys vs. public keys
- How to perform a technical analysis
- The difference between coins and tokens
- Proof-of-work vs. proof-of-stake
If you’re planning on doing something brand new (for you), be sure to learn as much as you can about it before jumping in so you don’t find yourself in a less-than-desirable situation.
5) Diversifying Your Assets Can Minimize Risk
When you’re first getting started buying, selling, and trading cryptocurrency, focusing on one coin or token can help you learn about the market and how it moves. But, putting all your eggs in one basket can be harmful if a bear market occurs.
Diversifying your assets can help mitigate that risk. Consider adding a second or third option to your original buys to create a bit of stability in your portfolio in case one of the cryptos in your wallet takes a dive.
6) High-Risk Projects May Be Scams
Always be wary of high-risk projects. It doesn’t matter if the market is up or down — or how long it’s been there — don’t let pie-in-the-sky claims cloud your better judgment.
There are many legitimate projects out there worth your time, effort, and money, but there are also plenty of projects that are ready and willing to promise outsized gains just to get a hold of your cash and then disappear.
Take to heart the cryptocurrency mantra, “Do your own research” (often abbreviated DYOR), and never get involved in a transaction with more money than you can afford to lose.
Weather the Crypto Bear Market With Binance.US
Before making any moves in a crypto bear market, take the time to decide if it’s the right option for you by:
- Considering your comfort level when it comes to risk and volatility
- Weighing the pros and cons
- Learning the best practices for buying, selling, and trading
At Binance.US, we offer the essential tools you’ll need to make the most of all your crypto strategies including making recurring automated purchases on a daily, weekly, bi-weekly, or monthly basis.
For more information, learn how to set up these automated recurring buys on Binance.US and gain access to over 150 cryptocurrencies, low fees, and a user experience that can help you weather the storm of a crypto bear market.
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